Abstract
PurposeHousing prices in Brazil have displayed an impressive growth in recent years, raising some concerns about the existence of a bubble in housing markets. In this paper, the authors implement an empirical methodology to identify whether or not there is a bubble in housing markets in Brazil.Design/methodology/approachBased on a theoretical model that establish that, in the absence of a bubble, a long-run equilibrium relationship should be observed between the market price of an asset and its dividends. The authors implement two methodologies. First, the authors assess whether there is a cointegration relationship between housing prices and housing rental prices. Second, the authors test whether the price-to-rent ratio is stationary.FindingsThe authors’ results show that there is evidence of a bubble in housing prices in Brazil. However, given the short span of the data, the authors perform a Monte Carlo simulation and show that the cointegration tests may be biased in small samples. Therefore, the authors should be caution when assessing the results.Research limitations/implicationsThe results obtained from the cointegration analysis can be biased for small samples.Practical implicationsThe information on the excessive increase of the prices of the properties in relation to their fundamental value can help in the decision-making on investment of the economic agents.Social implicationsThese results corroborate the hypothesis that Brazil has an excessive appreciation in housing prices, and, as Silva and Besarria (2018) have suggested, this behavior explains, in part, the fact that the central bank has taken this issue into account when deciding about the stance of monetary policy of Brazil.Originality/valueThe originality is linked to the use of the Gregory-Hansen method of cointegration in the identification of bubbles and discussion of the limitations of the research through Monte Carlo simulation.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
More From: International Journal of Housing Markets and Analysis
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.